Tag Archives: Shophouses

Stanley Quek companies sell 7 shophouses for S$81.4m to 8M Real Estate

A GROUP of companies controlled by seasoned property investor Stanley Quek is selling seven shophouses for S$81.4 million to boutique real estate investment company 8M Real Estate.

Five of the shophouses are adjoining properties at Nos 15, 17, 19, 21 and 23 Tanjong Pagar Road; they are changing hands for S$57.4 million. This works out to S$2,166 per square foot on the estimated gross floor area of 26,500 sq ft spanning four floors and a mezzanine level.

The five shophouses are on 8,902 sq ft of land with about 77.5 years’ balance lease. The internal space in the five adjacent properties is contiguous.

8M Real Estate managing director Ashish Manchharam said the space on the ground floor has been vacated by the previous tenant and will be leased to several restaurants. On Level 2 are Yoga Movement and landscape architects Grant Associates. Online content discovery platform Outbrain occupies most of the third floor while Adelphi Digital takes up the fourth and mezzanine levels.

The other two shophouses that 8M Real Estate is buying from Dr Quek-controlled entities are 18 Gemmill Lane and 71 Neil Road.

The Neil Road property, on a site with a balance lease term of 72 years, is being transacted for S$13 million or S$1,912 psf based on the GFA of 6,800 sq ft. All three levels and the attic are leased to PMG Group, which is in the integrated marketing communications business.

The Gemmill Lane property is being sold for S$11 million or S$2,511 psf on GFA of 4,380 sq ft spread over three levels and an attic. The street level space is leased to restaurant Bar A Thym. Level 2 is vacant while Level 3 and the attic are occupied by media group Unruly.

The companies controlled by Dr Quek are expected to make nice gains from divesting the seven shophouses after a holding period of four to five years. Based on caveats data, the five Tanjong Pagar shophouses were previously transacted at S$32.83 million in 2011; 18 Gemmill Lane changed hands at S$5.8 million and 71 Neil Road at S$8.2 million, both in 2012. The vendors are estimated to have spent about S$1 million refurbishing the seven properties, translating to a total investment of about S$48 million.

When contacted, Dr Quek said: “We believe this is an appropriate point to realise gains, having acquired the properties in 2011/2012 – and to reposition our portfolio of conservation CBD shophouses. We’ve made some gains here and move on to new asset classes or other areas of shophouses. I remain very keen on conservation shophouses because they are limited edition properties.”

8M Real Estate, on the other hand, still sees opportunity for repositioning and further growth for the shophouses it is buying from the Dr Quek-controlled companies.

“We shall seek to immediately refurbish and lease out the ground floor of the Tanjong Pagar shophouses with several exciting new F&B concepts and fill up the vacant second-floor space at 18 Gemmill Lane,” said Mr Manchharam.

The acquisition price of the seven shophouses equates to a gross yield of 4.0 per cent on the assumption the portfolio is fully leased, he added.

The latest acquisition will serve to boost the group’s CBD conservation shophouse portfolio. Set up in 2014, 8M Real Estate is owned by Mr Manchharam along with some institutional investors.

Inclusive of its purchase of 37 Craig Road for S$6.5 million last month, 31 Hongkong Street for S$14.45 million last year as well as its 2014 acquisitions of five shophouses along 112-116 Amoy Street (for S$50 million), and 22 Gemmill Lane (S$14.25 million), the total value of the group’s 15 shophouses today is about S$200 million, said Mr Manchharam. Having spent about S$3-4 million sprucing up the Amoy Street shophouses, 8M Real Estate has lined up hip eateries for the ground level. So far, Burger Joint has opened, while New York cocktail bar Employees Only and restaurants Ding Dong and boCHINche are slated to open next month.

“At the end of the day, we view shophouses as retail-anchored real estate and our focus is on the CBD because of the growing population that provides patronage, particularly for the ground-floor F&B outlets,” said Mr Manchharam.

Offices located on the upper levels within these shophouses also draw niche tenants, for instance, online media/tech companies.

Demand for shophouses grows as office rents continue to rise

With their colourful facade and distinctive five-foot way, shophouses are reminiscent of Singapore’s past. But even in today’s modern business environment, there is still a demand for them.

At Amoy Street, such shophouses have been taken up by creative outfits, restaurants and even small businesses who are looking for cheaper office space. With office rents already going up by 9.8 per cent in the last year, property observers have said that they expect demand for shophouses to pick up going ahead.

As of the last quarter of 2014, median office rents in the downtown core area stood at about S$10.50 per square foot per month. Shophouses, however, have significantly lower rents.

Ms Christine Li, director of research at Cushman & Wakefield, said: “If you compare the rents for shophouses and office buildings in the Central Business District (CBD), it is really at about half-price.

“It appeals to people and tenants, particularly those from the creative industries, who do not need the Grade A specifications but still want to be in the CBD, close to their clients. So without paying S$10 per square foot per month for a Grade A office building, they can just pay S$5 to S$6 for a shophouse next to it.”

According to a recent report by property consultancy Colliers International, before 2012, quarterly median rents remained generally below S$4 per square foot a month. That is compared to S$5.42 per square foot per month in the fourth quarter of last year.

However, while rents have gone up, shophouses are not necessarily the best asset class to invest in. Their rents have seen lower growth as compared to the rise in capital value, according to consulting firm Chestertons Singapore.

Mr Donald Han, managing director of Chestertons Singapore, said: “Your yield for conservation shophouses these days is at about 1.5 to 2 per cent, definitely less than 3 per cent.

“For investors looking at shophouses as an investment class, despite it being limited in number, they would have to hold on to an asset with lower returns, compared to other asset classes like residential that might give in excess of 3 to 4 per cent. Commercial strata offices might give you yield of about 3 to 5 per cent, industrial maybe about 7 per cent.”

Since the start of 2015, 25 shophouses have been sold, according to the Urban Redevelopment Authority.

Source : Channel NewsAsia – 20 Apr 2015

5 tips for investing in shops and shophouses

The number of commercial units, typically shophouses and strata units for office and shops, sold in 1H 2010 remained similar to that in 2H 2009. A total of 495 commercial units were transacted in 1H 2010, reflecting a 4 per cent decrease compared to that in 2H 2009.

Although economic conditions have tremendously improved in 1H 2010, the number of commercial properties transacted was subdued, underpinned by limited supply and a stalemate in sellers’ asking prices and owners’ offer prices.

The limited supply meant limited choices for potential buyers while for sellers, the limited supply of strata commercial properties meant that there would be no urgency to sell their properties in case prices appreciate with further economic recovery.

Nevertheless, the total value of commercial units transacted was $976.9 million, 12 per cent higher than that in
2H 2009. The encouraging value of commercial units transacted in 1H 2010 could be the result of a shift from an interest for units in the lower price-band, to units in the mid price-band.

In 2009, due to the adverse economic conditions, investors and buyers were cautious and preferred to purchase commercial units which were affordably priced in the lowest price band.

Most transaction activities of strata shops and shophouses still remain in the Central Region (planning areas like Outram, Rochor, Kallang, Geylang). Meanwhile, strata office investors are shifting their interest to fringe areas like Beach Road, Middle Road and East Coast vicinity.

Buying Shops & Shophouses – What should you look out for?

* Financing

As with most property transactions, getting funding is pivotal to the buying decision. Since July 2006, CPF savings cannot be used to finance commercial purchase. As such, getting a bank loan is critical.

With most banks granting loans of 70 to 80 per cent of the purchase price or valuation (whichever is lower), prospective buyers must have cash upfront for the remaining 20 to 30 per cent.

Currently, many banks are offering commercial loan packages at promotional rate of about 2.3 per cent which is a booster for many investors who are considering buying commercial properties for investment or owner occupation.

* Location

Location is one key consideration in the buying decision for any property, more so for shops and shophouses. As shops/shophouses are for retailing purposes, they should be in conspicuous locations and sited where human traffic is high.

In a shopping mall, one has to pay a premium for shops in the main shoppers’ concourse and facing the escalator where most shoppers will pass by when shopping. In the case of shophouse, its visibility from the main road and easy access to carparks are essential factors for consideration.

Good locations of shops/shophouses generate better rentability and therefore higher rental yields if they are held as investment properties.

* Tenure

Statistics in 2H2009 & 1H2010 have shown that most buyers for shophouses preferred freehold properties while about half of the strata shop transactions in the same period were 99-year leasehold strata shops.

Differences in values between the two tenures can be in the region of 15 per cent to 20 per cent depending on the balance years of lease and other factors.

In recent years, many buyers of commercial properties have embraced 99-year leasehold properties in their investment portfolios as they are more affordable and have higher rental yields because of their lower capital values.

* Zoning

This is essential to note when buying shophouses. Shophouses are usually erected on land zoned “Commercial” or “Residential with Commercial on Groundfloor Only”.

Shophouses sited on land zoned residential are essentially terrace buildings with “tolerated” commercial uses and the occupants have to pay Temporary Occupation Licence (TOL) fees to the relevant authority for the non-residential usage.

Buyers have to note that they cannot assume that the building erected on residential zoned land can continue to run as a shophouse when there is a transfer of ownership.

* Road line

This must be factored in when buying shophouses. Shophouses that face the main road are often affected by road lines. If the property is adversely affected – say, by a major road line – it will be more difficult to get bank financing as there is the risk of government acquisition for road widening.

However, if the shophouses are conserved or located within a conservation area, they are generally safe buys as these are “protected” areas.

Outlook for commercial units

Strata Office

The commercial property sales market is expected to continue to improve in 2010, in tandem with an expected economic recovery. Sales activity for strata office units is likely to reflect moderate increase, as investor sentiments for strata office units improve.

Potential buyers of strata offices are likely to continue to remain less sensitive to the tenure of strata offices. About two-third of strata offices transacted in 2H 2009 and 1H 2010 were 99-year leasehold strata offices. This trend is likely to continue, given limited supply, lower capital outlay and attractive yields of leasehold strata offices.

Strata Shops

The number of shop units transacted is expected to remain similar to the current number. However, due to limited new supply of strata shops, transaction prices is expected to be stable and there is potential for some capital appreciation.

Additionally, while strata shops are generally older and may be thought to be losing their appeal, there are certain trades which can only be supported by strata shops. These include lower-cost retail services, offering personable and customized services for regular customers.

About half of strata shops transacted in 2H 2009 and 1H 2010 were 99-year leasehold strata shops. This is likely to continue in 2H 2010.

Shophouses

Shophouses are expected to remain favourable for buyers, underpinned by limited supply and unique design. Some potential buyers will also feel that owning shophouses will be more tangible than renting as the unique value can only be actualised through owning.

Buyers are expected to remain keen in freehold shophouses. Currently, only about a quarter of shophouse transactions are leasehold, reflecting buyers’ strong desire to have a lasting interest in shophouses.

By Mary Sai, Executive Director Auctions (Commercial), Knight Frank